Commerce Accountancy

Accounting Principles and Practices

2,416 Questions

Accounting principles and practices involve the preparation of trial balances, ledgers, and bank reconciliation statements. This area tests your knowledge of fundamental accounting concepts and routine business transactions. It is a core section in commerce exams and various competitive tests.

Ledger accountsTrial balance preparationBank reconciliation statementAccounting conceptsPrimary books of accounts

Accounting Principles and Practices Questions

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

Double entry system is used in which type of accounting ___________.

  1. Cost

  2. Financial

  3. Management

  4. All of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Financial accounting is based on dual concept. On the basis of dual concept, all business transactions are recorded in the books of accounts. This signifies that, every business transaction will affect two accounts while making an accounting entry. Its basically a double entry system of accounting. For every debit, there will be a credit and vice versa.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

The accrual cost is the basis for ____________.

  1. Management system of accounting

  2. Mercantile system of accounting

  3. Internal system of accounting

  4. External system of accounting
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Accrual Accounting is the base of present accounting. It is also known as the mercantile system of accounting, wherein the transactions are recognised, as and when, they take place. 

Under this method, the revenue is recorded when it is earned, and the expenses are reported when they are incurred.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

The system of recording transaction based on dual aspect concept is called ________________.

  1. Double account system

  2. Double entry system

  3. Single entry system

  4. None of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Dual aspect accounting is a concept which assumes that every business transaction will give two effects, i.e. debit and credit. For every debit there will be a credit, and vice versa. Double entry system of accounting is commonly used by all the organizations. Small concerns who are not well versed with double entry system are following the single entry system, in which they maintained only account of debtors and creditors and bank account. 

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

The basis for the accounting equation is the principle of _________.

  1. Rights

  2. Rules

  3. Procedures

  4. Policies
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Accounting equation is the foundation of double entry system of book-keeping. It displays that all the assets are either financed by borrowing money or paying from the shareholder's equity. The balance sheet being the complex version shows explain the equation very clearly and it shows that total assets is equal to total liability plus shareholder's equity. The basis for this equation is the principle of rights.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

The system of recording based on dual aspect concept is called _______.

  1. Double account system

  2. Double entry system

  3. Single entry system

  4. All the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Dual aspect is the foundation or basic principle of accounting. It provides the very basis for recording business transactions into the book of accounts. This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places. In other words, at least two accounts will be involved in recording a transaction.

The double-entry system also requires that for all transactions, the amounts entered as debits must be equal to the amounts entered as credits.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

The governing principle of double entry system is that _________.

  1. for every debit there is an equal and corresponding credit

  2. debit the given credit the receiver

  3. debit what goes out credit what comes in

  4. debit profits and gains credit expenses and losses
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Dual aspect is the foundation or basic principle of accounting. It provides the very basis for recording business transactions into the book of accounts. 

This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places. In other words, at least two accounts will be involved in recording a transaction.

The double-entry system also requires that for all transactions, the amounts entered as debits must be equal to the amounts entered as credits.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

A system in which accounting entries are made on the basis of amounts having become due for payment or receipt is called _______________.

  1. Cash concept

  2. Accrual concept

  3. Matching concept

  4. On-going concept
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

There are two ways of accounting: 

1. cash system of accounting; and 
2. accrual system of accounting.
Accrual system of accounting defines that the revenues and expenses are to be accounted in the books of account on the basis of their accrual and not on the basis of their payment. 

For example, if any salary is due, it should be debited to the salary account, irrespective of when it is paid. 
The same applies to incomes. If any income is due to be received, the same has to be credited in the respective income account, irrespective of it being received or not.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

Under the accrual concept, which one of the following will not be shown as an asset/liability in the balance sheet of an entity?

  1. Interest due but not paid.

  2. Interest due but not received.

  3. Interest due and paid.

  4. Interest paid but not due.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Under the accrual concept, is the fundamental concept of accounting in which revenues are recorded when they are earned and not received in cash, and recording expenses when they are incurred and not actually paid. 

Hence point C is the only one which will not appear in the balance sheet as its been due and paid.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

Double entry system is  more accurate because__________.

  1. Mis-appropriations are minimised

  2. Arithmetic inaccuracies in records can be checked

  3. Possibilities of frauds is reduced

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The accounting system is a system of double entry , which means that every business transaction that is to be recorded or have been recorded, always have dual impact. This system is more accurate because of the following reasons:

  1. Mis-appropriation are minimized: The record of every transaction is first classified into assets, liabilities, expenses, revenue, capital and then these are recorded accordingly so if there will be any misappropriations that can be checked.
  2. Arithmetic inaccuracies in records can be checked: Double-entry system of book-keeping is based on the dual entry principle which means that for every debit there is a equal and corresponding credit amount. Such a method of debit and credit helps in ensuring the arithmetical accuracy of the recordings of the transactions.
  3. Possibilities of frauds is reduced: Accounting records helps the organizations to detect the frauds and errors that have taken place in business and take steps to prevent their recurrence i.e occurring again. Under this system mistakes and deflections can be detected - this exerts a moral pressure on the accountant and his staff.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

Name the accounting concept on the basis of which income statement is prepared ______________.

  1. Realization concept

  2. Matching concept

  3. Accrual concept

  4. Cost concept
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Under accrual basis of accounting, expenses are matched with the related revenues and/ or are reported when the expense occurs, not when the cash is paid. The result of accrual accounting is an income statement that better measures the profitability of a company during a specific time period.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

System in which entry is recorded for cash as well as credit transactions is known as _____________.

  1. Cash system

  2. Credit system

  3. Accrual System

  4. Non-accrual system
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Accrual system is an accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged. For example -In a credit sale, the sale is entered into the books when the invoice is generated rather than when cash is collected. 

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

Expenses/Income are recorded when it is earned irrespective of cash being received/paid as per _____________.

  1. Cash basis

  2. Accrual basis

  3. Both of the above

  4. None of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Under accrual basis of accounting, expenses are matched with the related revenues and/ or are reported when the expense occurs, not when the cash is paid. The result of accrual accounting is an income statement that better measures the profitability of a company during a specific time period.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

______ is the Accounting method that recognizes the impact of transactions on the financial statements in the time periods when revenue and expenses occurs.

  1. Cash basis

  2. Hybrid basis

  3. Accrual basis

  4. Double entry basis
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

There are two methods of accounting on the basis of business transactions are recorded i.e. cash system and accrual system.

If the transactions are recorded in books of account when cash is physically received is known as cash system of accounting irrespective of the period of revenue or expense. 
On the other side, if revenue and expense are recorded in the books of account based on the period of occurrence, its called accrual system of accounting irrespective of cash actually paid or not. 

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

Transactions affecting cash balance only are recorded in the books of accounts.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

False. In the books of accounts, transactions whether cash or on credit both are recorded in the books of accounts. Accrual basis of accounting records transactions by recognizing economic events regardless whether cash is received or not. 

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

The accounting system that affects at least two accounts is called __________ .

  1. Single entry system

  2. Double entry system

  3. Double account system

  4. Duplicate system of accounting
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Dual aspect is the foundation or basic principle of accounting. It provides the very basis for recording business transactions into the book of accounts. This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places. In other words, at least two accounts will be involved in recording a transaction.

The double-entry system also requires that for all transactions, the amounts entered as debits must be equal to the amounts entered as credits.